Journal Article

Reducing U.S. oil-import dependence: a tariff, subsidy, or gasoline tax?

Abstract: Low oil prices and rising oil imports have caused growing concern about U.S. vulnerability to oil-supply shocks. Mine K. Yucel and Carol Dahl devise a measure of vulnerability and use it to compare three policies that have been proposed to reduce U.S. vulnerability to oil-supply disruptions: a 25-percent oil-import tariff, a $5-per-barrel subsidy to domestic oil producers, and an increase in the gasoline tax from 9 cents to 25 cents per gallon. ; Yucel and Dahl find that the tariff would make the United States less vulnerable to disruptions. By increasing both consumer and producer prices, the tariff lowers consumption while encouraging domestic production. The increased gasoline tax could either lower or raise vulnerability. If domestic supply is not very responsive to price changes, the gasoline tax increases vulnerability. If domestic supply is responsive to price changes, the gasoline tax reduces vulnerability. The subsidy encourages increased consumption and production, leading to a faster depletion of the resource base. Hence, the subsidy would make the United States more vulnerable to oil-supply shocks.

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Economic and Financial Policy Review

Publication Date: 1990

Issue: May

Pages: 17-25